What Is the FDIC and How Does It Work?

Understand How the FDIC Works
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The Federal Deposit Insurance Corporation (FDIC) was set up as a response to the number of bank failures during the Great Depression in the 1930s. It is an agency that is backed by the government and insures the money that you have deposited in your bank in the event that the bank fails. If you are a member of a credit union you will receive  similar coverage through the National Credit Union Administration (NCUA) It is important to check to make sure that your bank or credit union is a member of one of these associations so that your money is protected.

What Are the Guidelines to Protect My Money? 

It is important to fully understand the FDIC guidelines so that you can take advantage of them. The FDIC will only guarantee the first $250,000 in your account. The accounts that are insured are deposit accounts such as checking accounts, savings accounts, money market savings accounts, IRAs, and CDs. They do not insure any investing accounts that you may have through the bank, such as mutual funds, annuities, stocks, and bonds. Understanding how this work will help you protect your savings

How Does the FDIC Determine Coverage Limits?

When determining the amount of coverage, the bank will look at the account owner name to determine the coverage. If you have three accounts are in your name only at a bank, and the total is more than $250,000, then only the first $250,000 is guaranteed. It is important to understand how this works so you can protect yourself.

If you have more money than this you should consider opening accounts at different banks (not different branches of the same bank) to protect your money. The bank will look at the total in all of your checking, and other accounts under the same exact name as one for the $250,000 protection. For example, if you have a checking account in your name with $100,000 and a savings account in your name for $200,000, they will look at the combined total of $300,000 and protect the first $250,000.

How Does Joint Ownership Affect the Coverage?

If you have joint ownership of an account and an individual account you may qualify for more insurance. For example, if you have an account that you are the sole owner of and a joint account with your spouse, each of these accounts will be looked at separately to receive the FDIC guarantee. Additionally, if your spouse has an individual account as well, then that money would also be insured. This means that you may be eligible for up to $750,000 in protection under this rule. You can ask a customer service representative to help you determine the amount of insurance you would qualify for with your specific accounts.

What Happens If My Bank Fails?

If your bank were to fail you would need to contact the FDIC to find out how to receive your money. The FDIC is not required to give notice before shutting down a bank but does post contact information, so that you can know the steps you need to take to get your money back. You can call them at 877-ASKFDIC or at www.fdic.gov. When you are considering opening a new bank account, make sure that they are a FDIC member. They will display a sign in the window and at the teller windows. Additionally, it should be posted on their website.

If you are opening an account through an online bank, you will also want to make sure they are insured. You can double check that they are by visiting the FDIC website and verifying that they are a member. Some online banks do not belong to the FDIC. 

Can I Open an Account at Bank or Credit Union Without the Coverage?

There are financial instuituions that offer much higher interest rates on savings accounts and CDs. These are often available online and may be tied to credit card companies or investments firms. You do not have the same protection for your money if you choose to open an account at one of these places. It is important that you fully understand the risks involved so that you can make an educated choice. If you do open an account there be sure not to put all of your money into the savings account.

You may want to pay attention to the market news in relation to the corproation or instituation so you can pull the money if it gets risky.